Half a million Post Office savers 'at risk' after Irish government take over account protection

More than 500,000 Post Office deposit account holders have been switched to the Irish government’s protection scheme.

The move will guarantee all of an account holder’s cash – whereas the British system will only guarantee savings of up to £50,000.

However, critics fear the switch could leave British savers at risk if the Irish economy – which is in a serious recession – deteriorates further.

Switch: Post Office accounts are no longer covered by UK schemes because its financial products are provided through a partnership with the Bank of Ireland

The Post Office is able to make the shift because its financial products are provided through a partnership with the Bank of Ireland, which is backed by the Irish government.

Customers received letters this month telling them their money was no longer covered by the Financial Services Compensation Scheme and responsibility had been passed to the Irish Deposit Protection Scheme.

The Irish government announced last year that it would guarantee all savings held in Irish banks until September 2010 – a move that infuriated many EU nations.

Previously, it had guaranteed savings of up to £79,000.

A Post Office spokesman said: ‘We wrote to customers more than two weeks ago to

explain that as the Irish Deposit Protection Scheme had been raised late last year, it automatically replaced the cover provided by the British scheme which was lower.

‘We have made clear to our customers that Post Office savings products offered in conjunction with our banking partner, the Bank of Ireland, are covered without upper limit by the Irish government until Sept 2010 and that remains the position.’

The British regulator, the Financial Services Authority, said: ‘It is the home- state scheme’s responsibility to pay up to its maximum limit.’

The move also applies to those who have money in Anglo Irish Bank, which was nationalised by the Irish government earlier this month.

Darius McDermott, managing director of Chelsea Financial Services, who has money in the bank, admitted that the letter had made him ‘nervous’.

He said: ‘All of the [Irish government] promises are with a small “p”. The question is, is the Irish government any more credit worthy than the UK one? If the banks all go bust, people are going to lose money.’

But he added that he did not think any of the banks would go bust.

Britons poured money into the Irish banks last year following the Irish government’s guarantee, with anecdotal evidence suggesting that applications to Irish banks from UK customers soared three-fold.

The stampede fuelled concerns about the financial security of British banks, who saw billions of pounds transferred to Irish institutions.

While most Britons view the Post Office as publicly owned, it has been selling financial products offered by the Bank of Ireland since 2003.